Tuesday, January 12, 2010

Back to Background Reviews in a Sort of “I told You So” Way: Developments With Respect to Prokhorov

This is sort of an “I told you so” update on the background check that public agencies didn’t do on Forest City Ratner’s new business partner, Mikhail Prokhorov.

Previous Perspective on Desirability of a Responsible Background Review

We previously wrote on the subject of public agency background checks with respect to approving project principals and whether the public agencies bringing us the Atlantic Yards mega-boondoggle (the Empire State Development Corporation and the Metropolitan Transportation Agency with the assistance of the City of New York) would try to sidestep a background review and approval for:

Russian oligarch Mikhail Prokhorov as a new proposed owner of the Nets basketball team, the heavily subsidized arena the team is supposed to play in, as well as the rest of the Atlantic Yards project which right now is nothing more than a multi-decade option to monopolize the development potential of 22 acres of valuable Brooklyn real estate. . .

We pretty much predicted that the agencies would engage in such sidestepping, given the hellbent determination of those agencies to continue with Atlantic Yards no matter how many project negatives emerge and accumulate. Sidestep they did! That was even though we noted that on the Brian Lehrer Show Rep. Bill Pascrell (D-NJ), assessed (we thought quite accurately), “I don’t believe this project would’ve been approved by the taxpayers of New York City and New York State if Mr. Prokhorov… was in this from the very beginning. . .”

Now we are wondering whether those public agencies are regretting the reviews they sidestepped. If you refer to our earlier post you will see that back when we last wrote about how the agencies might want to make sure they had looked deeply into Mr. Prokhorov’s background before doing business with him, the allegations about what should be looked into were much simpler. There were the questions raised about Mr. Prokhorov’s alleged importation of a planeload of prostitutes into France and Develop Don’t Destroy Brooklyn was citing accusations raised about Prokhorov’s “asset stripping, abuse of corporate governance and violations of minority shareholder rights” and “the reported link of the Russian aluminum giant, UC Rusal, with organized crime.”

There are times when you are at a public agency doing background checks that you want to hire investigative (detective) agency with international capabilities and then you do so. Business in Russia is tough. We have some (non-wealthy) Russian acquaintances who tell us that they are always suspicious of anyone in Russia with money because they do not believe that in Russia people become wealthy by doing nice things. (For some brand new Wall Street Journal background on Russian wealth that doesn’t mention Prokhorov specifically by name except in the chart showing the owners of Rusal, see: New Détente: Putin, Tycoons Rescue Each Other in Crisis, by Gregory L. White and Alexander Kolyandr, January 6, 2010. And here is a brand new story in the Post, having nothing to do with Prokhorov particularly, about Russian rough play business practices and “misplaced” billions going uninvestigated: Russia scandal looms over top city socialite's storybook rise, by Brad Hamilton, January 10, 2010.)

Chilling New Charge

Why might our ask-no-questions Atlantic Yards-loving public agencies now be regretting their decision not to do a Prokhorov background check? The latest news surfacing that an investigator doing a background review on Mr. Prokhorov would want to look into is this as phrased by Atlantic Yards Report:

a chilling charge surfacing in Moscow raises questions about Prokhorov's business interests and an alleged effort to silence a journalist.

“Silence” in that sentence is a euphemism for “assassinate.” The allegation is that three armed men, reportedly arrested in Russia outside the home of the Australian reporter, John Helmer, were hired to kill Mr. Helmer. The arrested men reportedly had a dossier on Mr. Helmer including a map of his apartment and a special kind of gun that had been used in at least one other similar style killing. Mr. Helmer is saying that he had been tipped off ahead of time by the Australian Department of Foreign Affairs that he would be the target of an assassination attempt. The reason this has raised “questions about Prokhorov's business interests” is because the three men “said they worked for a private security company that had been acting on behalf of Rusal” an aluminum company which is 18.5% owned by Prokhorov (a rounder 19% figure is given in a new Wall Street Journal chart). The reason words like “implicated” are being used is because, as Dave D'Alessandro writes in The Star-Ledger, Helmer is:

. . . the journalist residing in Moscow who has been a pebble in Mikhail Prokhorov’s shoe since oligarchs have been collecting their billions under the protection of a corrupt, Fascist state.

In other words, he’s the kind of journalist who turns up dead once a month or so inside Putin’s Russia.

DDDB republished Australian news coverage (Tip-off saves Australian journalist from Moscow plot, the Weekend Australian, Jan. 9, 2010) reporting that Helmer says he “might have been targeted because of his aggressive reporting on powerful Russian businessmen” mentioning specifically as one possibility the name of “42-year-old billionaire Oleg Deripaska” but not Prokhorov. (A Bigger Gun Problem for NBA Commish Stern? Alleged Plot To Kill Moscow Journalist, 1.10.10.)

The Number of Assassination Plots Rises. . .

As we said, business is tough in Russia. And apparently sports ownership too. Mentioning assassinations, Russians and Prohorov all in the same article had us remembering back to a No Land Grab November 6, 2009 post regarding two other stories appearing in the press more than a month after we has suggested that public agencies ought not to be sidestepping the responsibility of doing background checks.

Here from Deadspin, a sports blog:

. . . Shabtai Kalmanovich, one of Prokhorov's partners in post-Soviet billionaire sports owner crime, was murdered on Monday. Kalmanovich is the owner of the Spartak Moscow women's basketball team that is famous for shelling out big bucks to sign WNBA stars like Lauren Jackson, Sue Bird, and Diana Taurasi. He was also gunned down on the streets of Moscow when another car pulled up alongside his and opened fire. Yeah, not exactly a random act of violence.

Police say they believe that the murder could be linked to Kalmanovich's business activities, and maybe even "his prominent role in Russian basketball."

The other article in the New American (The official publication of the John Birch Society- quoting, in part, the New York Times!) argues against the National Basketball Association giving Prokhorov a clean bill of health in its own background vetting process now going on. (More on this later.) Here are quotes from that article:

Prokhorov is now going through the NBA's vetting process. "Like any prospective owner, Prokhorov will be investigated by the N.B.A. and a security firm that specializes in risk management," reported the New York Times. "They will try to ascertain his net worth, debts, character, associates, personal history and integrity. The process is designed to rule out inappropriate buyers who lack financial clout or present public-relations risks* to the league."

[* Just to emphasize again, this process was something not done by our public agencies.]

Looking into Prokhorov's past is not going to be an easy matter. "Russian oligarchs are an unusual group of capitalists by Western standards," noted Times writer Richard Sandomir. "David E. Hoffman, the author of The Oligarchs: Wealth and Power in the New Russia, said that men like Prokhorov emerged from a business climate that had 'no rule of law, a lot of shadiness, a lot of violence and coercion.'"

* * * *There are other colors also associated with Russian joint ventures: green, for huge sums of laundered money, used for bribes and corruption; and red, for lots and lots of spilt blood. Some of the most recent blood comes from Prokhorov's old business partner, Shabtai Kalmanovich, owner of Spartak, the professional Russian women's basketball team. He was slain on November 2 in classic gangland style. Kalmanovich's black Mercedes-Benz was sprayed with submachine-gun and shotgun blasts from a passing vehicle.

* * * *The identity of the perpetrators of the Kalmanovich hit and their motive have been open to speculation. Various news accounts suggested it could be attributed to revenge by former business associates or a move by Russian mafia figures to take over his operations. More likely, Kalmanovich's demise was part of the reconsolidation of "The Party's Gold," as reflected in the Putin regime's ongoing renationalizing of business assets of Russian oligarchs.

* * * *Prokhorov, the charming, brilliant wunderkind is the front man for a ruthless underworld run by the KGB-FSB and its minions in the Russian mafia. Russian oligarchs like Prokhorov, Kalmanovich, Boris Berezovsky, Roman Abramovich, Alexander Lebedev, and Mikhail Khodorkovsky did not become billionaires virtually overnight because of their business acumen and financial genius. They were provided with special privileges and massive state assets to serve a strategic political agenda.

As we have pretty much said already, our public agencies (ESDC, the MTA and good ol’ NYC) were either exhibiting phenomenally bad judgement in sidestepping a background review for Prokhorov or they were truly politically hellbent to have Atlantic Yards go forward no matter what and were not inclined to expose themselves to adding still more to the list of negatives known about the mega-project.

Does Mr. Helmer Indeed Speak Critically of Mr. Prokhorov?

Back to Mr. Helmer: Is the supposedly assassination-targeted reporter “a pebble in Mikhail Prokhorov’s shoe” as the Star-Ledger reports? We think so, but we found something in Wikipedia that seems to say the opposite. Under “Career” subheading “Controversies” it says:

However, other Russian controversial businessmen such as Norilsk Nickel owner Vladimir Potanin or his former business partner Mikhail Prokhorov are never negatively portrayed in Helmer’s blog.

Judging for ourselves that Wikipedia assessment doesn’t seem to be very accurate at all. We went looking for the kinds of things Mr. Helmer has written about Mr. Prokorov. (Atlantic Yards Report in its story about the attempted Helmer assassination has also provided links to look at.) We provide you, for your own assessment, some of what we found. While we think that what appears below is unquestionably negative about Mr. Prokhorov the Star-Ledger offers that Mr. Helmer is possibly “a fair bit over the top in his pursuit of truths” though “a fascinating and talented fellow.” That being said we won’t try to sort out the accuracy of what Mr. Helmer is saying but just observe that it is negative in tone. In other words, he does sound like the Prokhorov “pebble” described. As indicated, some of the below is written by Mr. Helmer himself and some of it is written by others about what Mr. Helmer has said or reported.

This supports the New American’s notion that the Putin-powers-that-be may not be happy with Prokhorov taking capital out of Russia:

. . Prokhorov has been acutely sensitive to the coverage he has been getting in the American media for some time, . .

* * * *

New York and New Jersey media coverage of the deal [becoming the part-owner of the New Jersey Nets] casts doubt, not on the reported details, but on Prokhorov’s acumen. New York sources say that opposition to the building of the stadium is popular and powerful. “If Prokhorov thought the Red Directors were a drag, wait till he meets the Brooklyn Brownstoners,” says one.

An analyst for an American sports internet publication commented on September 17: “if he were actually so shrewd, why invest in any franchise, much less a money pit like the Nets? The Brooklyn stadium has been a boondoggle to say the least, and there’s no history of this franchise grabbing a hold of that crucial NYC market.

* * *

Putin and Sechin can read enough English to appreciate the punchline: “his decision to pursue the Nets means that his wealth may be a stroke of luck, not good judgment.”

* * *

Is Medvedev seriously contemplating carte-blanche for Prokhorov to invest in American basketball?

Even a champion brown-noser among Canadian sports reporters, Eric Reguly, couldn’t find in Prokhorov’s basketball and business strategy the hint that he might invest in US sports losers.

* * * *

Sources who have followed Prokhorov for a long time, including those who have worked for him, suggest that his deals can be the predictable result of his suffering what he imagines to be a personal insult. The sources suggest that whenever Prokhorov thinks his amour-propre has been injured, he spends money on schemes of revenge.

* * *

But times change, and buying into the Nets appears to be a different story. If Prokhorov hasn’t applied for, and received Kremlin permission; and if he goes ahead with the deal, then he may be signaling that his pride has been hurt. Buying an American asset for half a billion dollars is his way of showing sangfroid.

This week's news about Prokhorov and the Nets began circulating as a rumor in Russia in July. How he managed to clear the proposed deal with Putin is unknown. The Moscow-based business journalist John Helmer has somewhat ingeniously speculated that an earlier rumor from the summer, about Prokhorov buying the Italian soccer team Roma, is connected to this: that Silvio Berlusconi* asked his friend Putin to find someone to bail out Roma, and that Prokhorov is in fact buying Roma as a condition for being allowed to buy the Nets. Helmer counts up the damage: (Click to read more.)

[* FYI: In the small world of power players, Berlusconi is Michael Bloomberg's neighbor in Bermuda.]

$330 million in cash down and pledged money—more than twice what a reasonable man would pay for a football club in a faraway place—in exchange for a permit to spend $700 million on a loss-making basketball team in another faraway place.

Well, perhaps. The ordinarily hyper-sarcastic Russian press, for its part, has been unnervingly straitlaced about the news.

Here is Helmer’s speculation about how a RICO lawsuit (a civil racketeering lawsuit) could be brought against Mr. Prokhorov:

So here we are now in New York, where the mayor, a 5 foot-6 inch fellow named Michael Bloomberg, has spent $85 million to make sure noone has a chance of contesting the mayoral election against him on November 3; actually, by then he will have spent between $110 million and $140 million. With money like that, you might say the racket is already in power in New York City, and RICO is Mayor. So, you might also ask – how is it possible to file a lawsuit in a town whose mayor is Bloomberg against a Russian bad guy, whose legal exposure is that he conspired to make a lot of money, and got rid of any competition that stood in the way, mostly by paying for it to go away.

Hey Rico! Meet Micky Prokhorov – a man whose record for violating US-type stock manipulation and asset stripping regulations was allegedly so bad, an Englishman with an inherited title made the allegation in public. That man, Patrick Gillford (Lord Gillford, son and heir of the 7th Earl of Clanwilliam) made a lot of money himself working on projects which, according to Prokhorov, were paid for by Vladimir Potanin, Prokhorov’s original business partner in Moscow. Because Prokhorov was fighting Potanin for control of Polyus Gold, the listed goldmining company, whose stock they shared in roughly equal blocs, and because Gillford occupied a seat on the board as a purported independent, Prokhorov retorted in public that Gillford was toeing Potanin’s line, because he was being rewarded, and so wasn’t independent at all.

* * * *

A year on, and now that Mayor Bloomberg is backing Prokhorov to buy with some of his own, but mostly borrowed money, the Nets basketball franchise and a control stake in a Brooklyn real estate development, investigators from New York have been asking Gillford and Ryan to repeat what they said about Prokhorov’s business practices in 2008. But they refuse. Gillford is still sitting on the board of Polyus Gold; Potanin has cut his losses and sold out; and Prokhorov controls the company without challenge. Recently Ryan let slip: “In the end he didn’t have to steal the company’s assets, so what’s the point of repeating last year’s complaints that he might?”

* * * *

If Bloomberg’s New York doesn’t have civilization, it’s unreasonable to expect it of Putin’s Russia. So it ought to be understandable that Russians are only too glad to see more of fraud and subversion, in order to feel less compelled by force. They feel sorry for New Yorkers who think the only racketeers they will ever see perform are between the advertisements in replays of The Sopranos.

For Russians, the difference between Prokhorov and a civilized New Yorker like Bloomberg or Bernard Madoff is that there isn’t a difference; and that the only people who don’t realize this, and buy their promissory notes, are fools who ought to know better. And if they don’t, it’s a mitzvah to relieve them of the money they hardly deserve to keep. Madoff doesn’t count now, so you might ask Mayor Bloomberg whether he thinks Micky Prokhorov is that kind of mark.

“The question arises, at least from here in Moscow: Does the NBA commissioner think it’s his duty to do what it considered due diligence?” asked John Helmer, a former Carter Administration official who has run an acclaimed business news service in Russia since 1989. “And in the United States — particularly in New York State — you have to believe that an oligarch is open to investigation.”

The investigation will be conducted by NBA commissioner David Stern’s own legal team, but given the league’s desperate need for investors with deep pockets who can also expand their fan base into new markets, cynics would suggest that Prokhorov will get the feather-duster treatment.

As we said, our state agencies decided to let the accusations with respect to the planeload of prostitutes pass without provoking any kind of background investigation. We find out from the same article above (quoting Helmer again) that in Russia that incident had far greater consequences with respect to public reaction and what Prokhorov was allowed to own.

On the night of Jan. 9, 2007, Prokhorov was vacationing with friends at Courchevel, a ski resort in the French Alps, when he was arrested on suspicion of providing prostitutes for his guests. He was jailed in Lyon and released without being charged four days later, but his partner used the incident to denounce Prokhorov on state television and force him to give up his 26-percent stake in Norilsk Nickel.

The settlement was complicated: Prokhorov agreed to sell his Norilsk stake for a combination of cash and shares in Rusal, the billionaire Oleg Deripaska’s aluminum monopoly. That went into bankruptcy last year, leaving Prokhorov with several billions in cash, worthless shares, and a substantial IOU — “owed to him by people who can’t pay,” as Helmer put it.

Counting the Many Ways to Regret

We wonder not only how much the agencies that bypassed doing a background review on Prokhorov are regretting but also the reasons they may be regretting it now. Certainly, the assassination talk and being in the dark about where it might lead should be uncomfortable but, ironically enough, things are now shaping up to the point where we may be about to discover that Forest City Ratner itself wouldn’t be able pass an initial agency background check. That is because of the way that things are developing with respect to a federal investigation into the Forest City Ratner’s bribing of public officials with respect to their Ridge Hill project in Yonkers. For more nuance about how that investigation might unfold,* including how the New York Times went incredibly out of its way to characterize Forest City Ratner’s payments to public officials as not likely to be illegal, see our last post: Got “Bilked?” The New York Times Biased Report on Federal Investigation Involving Forest City Ratner (Thursday, January 7, 2010). Remember that the Times has its own business relationship with FCR: Their joint venture used eminent domain to acquire the site for new New York Times building at a low cost.

(* We read about how: Daniel Goldstein, who Bruce Ratner is trying to remove from his apartment at the site via politically connected eminent domain recently commented that he decided to pick out new colors for his baby’s room after reading a federal indictment of Yonkers officials. “I’m certainly not preparing to find somewhere else to live when he (Bruce Ratner) potentially…has a new place to live behind bars”.)

Getting Out of Contracts When There Are Background Problems

So if the public agencies had done a background check on Prokhorov they might not now be having to think about the ugly position that an unfolding of the Ridge Hill investigation could put them in. There may come a point where the public agencies are going to need to look at unwinding transactions with Forest City Ratner. What has already been reported about Forest City Ratner’s payments to public officials in connection with the Ridge Hill project would certainly have posed a threshold problem at the agencies where I used to work and would have required quite a lot of explaining if a clearance to proceed was going to be given. In this case, ESDC (and its Byzantine cohort of sister agencies) have actually proceeded to issue bonds for the proposed basketball arena. It is of course messy to have contracts to unwind, but perhaps compounding the situation even further is the fact that because the bonds were closed with many aspects of the of the real estate side deal in escrow or to be performed in futuro, the contracts are in many respects executory in nature (characterized by unperformed obligations) and it is therefore hard to make excuses not to terminate them.

That then is another headache for public officials who now ought to wish they had done a background check since it now could become more likely that Prokhorov won’t be approved by the NBA.

Here is an interesting turnaround thought: Could the NBA become more concerned about approving Prokhorov because events with respect to Ridge Hill now make them more concerned about the ownership approval they previously gave Forest City Ratner. Since FCR would probably sell the team if Prokhorov is not approved, such a non-approval could garner the NBA a two-for-one housecleaning (and some better press).

Races To Clean Up?

Why might the NBA want a clean house? Because you never know who is going to be investigating these things or how deep they will go. For instance we now know that Assembly Member Richard Brodsky is collecting a sizable $1.3 million war chest to run for state attorney general to replace Andrew Cuomo. Brodksy has laid claim to the mantle of an investigator of public authorities and stadium finance abuse so he really can’t afford to be shown up by not pursuing and vowing to pursue these and the many related juicy opportunities for investigation. By the same token other candidates looking to get ahead of Brodsky may want to show that they can beat him at what he has declared to be his own game.

If the multiple candidates competing for the office of attorney general are all clued in to the fact this is where the action is, can Cuomo, who is expected to run for governor against incumbent David Paterson, afford to let the grass grow under his investigative feet, especially when he has already been asked to investigate Atlantic Yards and is already investigating some interrelated abuses with respect to Willets Point? If Cuomo pursues the Atlantic Yards and related boondoggles as he should (and that would also be a sweet strategy for challenging David Paterson), can Paterson afford not to finally start addressing these matters he has neglected?

There is enough brewing here that, if it explodes, would seriously hamper Cuomo’s or anyone else’s run at the governorship. It is possible to think of it in even bigger terms: An explosion of these matters would be national news. . . You know, the kind Jon Stewart covers on The Daily Show? Forget the governorship: Politicians caught napping when these matters blow up would hardly be able to set foot on the national stage afterwards.

About Me

NOTICING NEW YORK & NATIONAL NOTICE are both independent entities managed by Michael D. D. White of Hop-Skip Enterprises. Michael D. D. White is an attorney, urban planner and former government public finance and development official. *** Noticing New York covers New York development and associated politics. National Notice covers national policy and economic issues *** Contact: MichaelDDWhite(at)gmail.com